Saturday, October 18, 2008

Competitions as Commitment Devices

Today I had the privilege of judging the first phase of MIT’s famous $100K Business Plan competition. My fellow judges and I watched approximately 30 participants give their best 60-second elevator pitch to sell their business idea. Our contestants were all part of the “development track” which consists of businesses that address global issues such as poverty or the environment. Participants covered an impressive variety of quality ideas and technologies including low cost/non-electrical lighting, unique bio-fuels, medical diagnostics that cost 10 cents and can be mailed to the lab on a post card, solar cooking, and mesh wireless networks that overcome last mile issues in rural areas.

I have a strong personal interest in developmental entrepreneurship. In my day job I was a founding member of the IBM World Development Initiative and the leader behind its successful Global ThinkPlace Challenge to brainstorm sustainable solutions to African poverty. I was also a development track $100K participant myself (although back then it was only the $50K). My “Wider Reach” team, consisting of fellow Sloan MBAs Brian Roughan, Armina Karapetyan, Kamal Quadir, and Joe Zeff along with MIT Media Lab PhD student Jose Espinosa, was the winner of the $2,000 IDEAS Award, the $1K development track, and a semi-finalist in the overall $50K competition. We designed a mobile phone accessible marketplace for Bangladesh. Kamal Quadir stuck with the plan and made it a reality. The company is now called CellBazaar and its success has been widely covered by the media including The Wall Street Journal and The Economist.

Kamal’s story illustrates the power of business plan competitions. Kamal went to MIT with the intent of landing a job in finance. Instead he is an entrepreneur helping thousand of impoverished farmers sell their crops more efficiently. How did this happen? While the organizers of business plan competitions may think they are creating entrepreneurs by providing a little financing and exposure, I believe that these competitions are actually serving as Cialdini commitment devices.

Business plan contestants, many of whom had no original intention of becoming entrepreneurs, make small but increasingly significant commitments to the competition. It is easy to put together a 60 second elevator pitch but next they are writing executive summaries and then complete business plans. At each stage contestants declare publicly both orally and in writing their intent to follow through with the business idea. Eventually, through the absolutely amazing power of cognitive dissonance, contestants feel pressure to make sense of their efforts and declarations and rationalize that they must truly want to start these businesses after all. In fact, the large prize money offered in these contests actually takes away from the cognitive dissonance effect as it provides an alternative justification to contestants. So, counter intuitively, if the $100K organizers really want to create more entrepreneurs they might consider dropping the prize money back down to the original $1K!